Utilitarianism or some form of consequentialism has underpinned the ethical worldview of many libertarians past and present. Within the “Austrian” School we may cite Ludwig von Mises, F A Hayek and Henry Hazlitt as proponents of this approach, contrasting with the more rule-based or deontological approaches of, say, Murray N Rothbard and Hans Hermann Hoppe, and the objectivism of Ayn Rand.

This essay will seek to examine some utilitarian and consequentialist arguments in favour of liberty. In doing so we must bear in mind two aspects. First, not all utilitarian arguments are of the same ilk and vary from simple approaches of judging outputs resulting from a posited situation with interpersonal utility comparisons, all the way to more general and sophisticated treatments such as that of Mises and that of Rothbard in his noted article “Towards a Reconstruction of Utility and Welfare Economics”1. Here, therefore, we will compare these two utilitarian approaches towards liberty. Second, the adequacy of utilitarianism can be examined from the point of view of providing a moral bulwark for a world of liberty on the one hand and from the point of view of promoting such a world on the other; our treatment of it may be different in each circumstance because that which may be suitable to form the moral foundations of liberty may be not be the key aspect that we can emphasise when persuading the populace of the virtues of a libertarian society. Hence we must examine any utilitarian argument from both points of view.

We will begin, then, with the basic forms of consequentialism that look to measure the output of individual scenarios. Such an approach will often posit an emotive and hypothetical situation where one individual owns property and another individual will succumb to some kind of malady such as hunger, illness and ultimately death unless he gets his hands on that same property. A typical example is of a lost man wandering in the woods, cold, malnourished and in immediate need of food and shelter. He comes across a log cabin, of which someone else is clearly the first user/occupier. By peering through the window our lost man can see that it is full of food. Would it be ethical for him to break in to the cabin, use it as shelter, and/or eat some of the food without the permission of the first user?2

The rule-based approach to libertarianism would state that the lost man does not have a right to break into the cabin, use it as shelter and eat the food without the permission of the cabin’s first user (hereafter, the “owner”) as it is a clear breach of the non-aggression principle. However, a utilitarian or consequentialist may argue that while the cabin owner has a prima facie right to the ownership of the cabin and its contents the question should be answered by taking the approach that avoids the most harmful consequences – or, conversely, promotes the best consequences. In this particular situation, the loss of the food or shelter to the cabin’s owner would, apparently, not be a remarkable cost. Yet the denial of it to the lost man, starving and shivering in the open, would be tremendous, may be even as much as his life. We may warrant, therefore, that the starving man should be able to break into the cabin.

Is it possible for such a view to form a) the moral backbone for libertarianism and b) a persuasive argument in promoting a libertarian society? In answer to the first question, we must decide firmly in the negative. First, all of these scenarios, such as the starving man in the woods, are purely hypothetical situations to which we are expected to give hypothetical responses. However, ethical dilemmas do not arise in hypothetical situations; they arise in real situations where there are genuine conflicts over scarcity. Although such hypothetical situations could one day come about, the danger of entertaining them is that it can be worded in such a way as to provoke the answer most desirable to its proponent. Thus the die is already loaded in favour of the latter’s political philosophy. Walter Block comments on such an example provided by Harold Demsetz of the Law and Economics movement (which is basically a utilitarian approach to legal rights). Demsetz’s scenario is that of “Austrian Pure Snow Trees”, which are owned by a religious sect. An ingredient from these trees happens to be the only cure for cancer, but the religious sect will not allow them to be used for that purpose, reserving them instead for religious worship. Demsetz challenges whether it is really “evil and vicious” to override the private property rights of the religious sect so that cancer sufferers can benefit from the trees’ curative ingredient. Block responds at length:

Given [Demsetz’s] highly emotional example, it is indeed hard to resist the notion that it would be preferable if the trees were used as a cancer cure.

Emotionalism can be a double edged sword, however. As long as our intuitive imagination has been unleashed by Demsetz in this creative way, why not push the envelope a bit? Consider, then, the case where the views of this religious sect are absolutely correct! That is, if the trees are torn down for so idolatrous and unimportant a purpose as curing cancer, then we’ll all be consigned to Hell forever. Wouldn’t it then be “intuitively appealing” to allow the islanders to continue their ownership of these trees?

Demsetz, in taking the opposite position, is acting as if the cult is erroneous in its religious beliefs. But assume for the moment the “cultists” to be correct in their world view. It would then be justified – according to Demsetz – not only to protect them from the onslaught of the cancer victims, but to seize the assets of the latter if this would in any way help the former. Suppose, that is, that there was a cancer cure, owned, now, by the victims of this dread disease, but that for some reason the worshippers determined that this material would help them in their efforts to contact the Deity. Then, according to the logic established by Demsetz, it would be appropriate public policy to forcibly transfer the cure to the control of the religious ”fanatics.” Surely Demsetz knows nothing-for certain that would render such a conclusion invalid.

[…]

Let us extend the Demsetzian argument in yet another dimension. Suppose that it was not the islanders’ trees that could cure cancer, but rather their hearts. That is, the only way to save the sufferers from this disease would be to kill, not the Austrian Pure Snow Trees, but their owners, the members of this religious sect, and then to take their hearts, chop them up, and feed them to cancer victims. Would Demsetz (“emotionally”) support this “modest proposal” to do just that?

[…]

Ultimately, there are only two ways of settling such problems. All others are merely combinations and permutations of these two. On the one hand, there is a provisional or instrumental property rights system. Here, holdings are secure only as long as no one can come up with a plausible reason for taking them away by force. Under this system, either dictators or majorities (or dictatorial majorities) hold the key to property rights. The difficulty is that there are no moral principles which can be adduced to derive any decisions. Presumably, utility or wealth or income maximization is the goal; but due to the utter impossibility of interpersonal comparisons of utility, this criterion reduces to arbitrariness. On the other hand is a thoroughgoing and secure property rights system. Here, one owns one’s possessions “for keeps.” The only problem here is the temptation to overthrow the system in order to achieve some vast gain, such as the cure for cancer. Demsetz’s example is so forceful by virtue of the fact that he expects his readers will consider a cure for cancer to be more valuable than a pagan rite – he knows it is likely they will engage in interpersonal comparisons of utility. But these temptations are easily resisted as they are inevitably imaginary and artificially constructed. We have yet to be presented with a real world example where there is a clear cut case for massive property rights violations.

[…]

Hypothetical arguments have their undoubted philosophical use. [However], the point being made here[…]is that [deontological] libertarian rules are only inconsistent with broad based utilitarian concerns in the imagination, not in reality.

Note how far from reality Demsetz must remove himself in order to manufacture an example that is intuitively consonant with his support for what in any other context would be considered murder (hearts) or theft (trees) or slavery-kidnapping (draft).

[…]

In very sharp contrast indeed, resort need not be made of fanciful examples to defend the libertarian vision.3

Imaginary scenarios, then, are always worded so that the listener is encouraged to empathise emotionally with the economically deprived while completely ignoring the point of view of the property owner, or at least making the latter look frivolous and capricious. Such a rhetorical trick applies not only to specific scenarios but also to entire political treatises. How much, for example, do the imaginary, hypothetical situations of the original position and the veil of ignorance in John Rawls A Theory of Justice – which do not exist in the real world – demand the very answer that the author desires?

Second, the purpose of ethics is to resolve or otherwise avoid conflicts that arise from the result of physical scarcity. Rule-based approaches to liberty that provide physical demarcations to denote property rights permit this to a high degree of certainty in any given situation as the boundaries of permissible action are constructed objectively. Because all valuations through action result in physical changes to physical goods, objective evidence of these changes – i.e. homesteading, production, etc. – give an immediate cue to indicate to a latecomer that the property may not be touched4. Consequentialist approaches, however, cannot rely on objective, physical demarcations to denote property rights; rather, they rely upon the measurement of competing subjective values. This renders the resolution of conflicts and conflict avoidance much more difficult. The question the lost man faces is what am I permitted to do right now? If moral boundaries are based upon hypothetical and changing values and tastes then this question cannot be answered. He may assume that the cabin owner values the cabin and its stock of food less than he does, but he has neither evidence nor proof of this. Indeed the cabin owner isn’t even there to ask. And whether the cabin owner values it less may change from day to day. Yesterday, the cabin owner might not have valued these resources very highly at all; today, however, what if the cabin owner has himself suffered an accident and requires the shelter and food, which he believes to be in secure possession, and is now under threat from the wanton consumption by the lost man? What if the cabin owner’s life is threatened by the loss of food and shelter? Indeed, what if he had purchased the cabin as insurance against that very possibility? There is, therefore, no way of making a rational decision ex ante.

Third, if ethical determinations cannot be made ex ante then it follows that a decision must be made ex post. In other words, the lost man could take a chance by breaking into the shelter and then battle out the question of whether he was right to have done so later through litigation or a settlement process. It is for this reason that utilitarian forms of libertarianism tend to be minarchical rather than anarchical. Hence, this basic form of utilitarianism provokes the very monolithic state apparatus that libertarians should be opposing, and puts in its hands a tool – interpersonal utility comparisons – with which to make its decisions, a tool that is ridiculously uncertain and malleable5. To be sure, it might be possible for individuals to form an empathetic judgment based on interpersonal utility comparisons in an individual situation. But it does not follow from that possibility that a government or a court could make a rigorous determination when passing legislation or enunciating judgments that affect the lives of millions of people in multitudes of different situations6.

Fourth, at the heart of many consequentialist approaches is a fundamental misunderstanding as to what the concepts of “liberty” and “freedom” actually mean. If one views them as meaning freedom from want, from hunger, from the elements and so on then one is naturally led to a consequentialist approach. However, properly considered, liberty is a sociological concept that applies to the relationship between each individual human being. A person is free if he can live his life without the physical interference of his person and property by others. Whether he is hungry, cold, or naked, on the other hand, concerns his relationship not with other human beings but, rather, with nature. This can only resolved not by extending his “freedom” forcibly into the territory of others but by gaining power over nature – in short, by productivity. Any number of theoreticians can spill oceans of ink in trying to determine whether or how the wealth of the cabin owner should be distributed to the lost man in the woods. Yet wouldn’t it be so much better if society was so wealthy that the lost man possessed the wherewithal to prevent himself from being in such a wandering state in the first place? What if the man had an inexpensive GPS system; compacted supplies of food in pill/tablet form that could sustain him for weeks or months; emergency communication devices that would alert a private protection agency to his whereabouts? Yet it is precisely such productivity that is threatened by consequentialist determinations of property rights. Strong private property rights that remain certain following original appropriation or voluntary transfer promote economic growth by encouraging saving, long term planning and low time preference. Uncertain or vague private property rights do the exact opposite. If it is possible that your property will be snaffled in an instant by someone who allegedly “values” it more than you do then the attractiveness of using the good for saving and investment is lowered. You will be willing to take fewer risks and will work less hard with the good if you know that the fruit of your efforts might be confiscated in the blinking of an eye. At worst, such weak property rights encourage immediate consumption as soon as you get your hands on any good at all. That way, in most cases it will no longer exist for someone to take it away again at a later date.

Turning now to our next question, would such basic consequentialism serve in any way to persuade people of the virtues of a libertarian society? Again we have to answer firmly in the negative. We must remember that the primary preoccupation of libertarianism is with the evil and oppressive monolith known as the state. This is the entity that truly destroys freedom; it confiscates our income to fund its profligate spending; forces us to use its worthless paper money that it prints incessantly to fuel its endless foreign wars; destroys families and fuels poverty and dependency with the massive welfare state; regulates what we can do with our bodies, what we can say with our own mouths, where we can set up business, whom we may employ in that business and on what terms. Government is estimated to have killed approximately 262 million people outside of warfare during the twentieth century; private affronts to liberty – even such horrendous crimes such as murder and rape – pale in comparison to this. The US government’s so-called war on terror, at a cost of several trillion dollars, has killed an estimated 1.3m Iraqis, Afghanistanians and Pakistanis in its first ten years, even though more Americans are killed by falling televisions than by terrorist attacks. The greatest insult has to be that it is this miniscule private crime that supposedly constitutes the very justification for the state and its monopolisation of security and litigation. Although there is no shortage of nobility in striving to apply justice in every individual case, libertarians must fry the biggest fish and not spend their time debating whether a lost man breaking into a cabin is or is not an affront to liberty. When attempting to promote liberty, let us confront the very real ogre of the state rather than dwelling in imaginary scenarios that will make no practical difference to people’s everyday lives. Furthermore, as we mentioned above, if justice depends on interpersonal utility comparisons in individual cases, then it craves for the existence of a compulsory referee in the form of the state, the very thing that destroys liberty entirely. We must conclude then that this basic form of utilitarianism, which seeks to evaluate outputs from specific situations, must fail on all accounts as an argument in favour of liberty.

Let us now turn towards a second conception of utilitarianism, the more sophisticated approach adopted by such eminent theoreticians as Ludwig von Mises. The tenor of this approach is that voluntary exchange under the division of labour – i.e. the market – is essential for the survival and flourishing of every individual human being; every human is so interdependent upon every other that to plump for anything else would result in the rapid disintegration of the standard of living or, at worst, certain death. Hence this form of utilitarianism concentrates on the virtues of the market itself rather than looking to the justice of individual situations. Mises, and others who follow this approach, therefore avoid any complications arising by way of interpersonal utility comparisons.

It is important to realise that this argument is predicated upon a few other important Misesian insights. First is that when pondering the economic organisation of society only two extremes are possible – the free market or total socialism. As Mises so effectively argued, any “interventionist” point or “mixed economy” approach in between these two extremes will cause effects that must either lead to abandonment of the intervention on the one hand or to total control on the other. One must therefore choose between one or the other and cannot favour anything in between. By demonstrating the economic impossibility and the catastrophic consequences of full socialism Mises demonstrates the complete lack of basis for making a choice that favours full government control. The only rational option, therefore, is the unfettered free market. Second, and related to this theme, Mises was of the view that “society” is synonymous with social co-operation under the division of labour. As he says in Human Action:

A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.7

Following this line of thinking, questions such as “how to organise society” strike one as absurd when society itself is already a form of organisation. We do not have the choice of “picking” from an array of options when it comes to forming a society. Either there is social co-operation under the division of labour and society exists; or there is an atomistic hand-to-mouth existence and society does not exist. Any person, therefore, who genuinely wishes to promote a theory of society cannot rationally opt for any kind of socialism and, a fortiori, any kind of interventionism8.

How useful is this approach for forming a moral backbone for libertarianism? At first, this approach seems remarkably more plausible than the basic form of consequentialism that we just discussed. By looking at the general consequences of the market we do not get caught up in traps such as interpersonal utility comparisons and we have a strong counter-argument against anyone who proposes a collectivist theory of social organisation. Moreover, the fact that the marketplace serves to improve the material wellbeing of every individual human being lends it a heavy degree of moral weight. If the free market was to spread misery and discontent through perpetuating a lower standard of living we would surely be willing to lend it less moral credence. Unfortunately, however, this utilitarian approach lacks the very thing to which the basic form of consequentialism was far too devoted – a rigorous passion for the justice rather than simply for the utility of private property rights.

First, although it provides a rhetorical defence against those who profess their collectivist aspirations to be for the benefit of society, it will never provide a defence against megalomaniacs who are content to milk everyone else for all they are worth. In other words, it will never provide an answer to those who believe society exists to serve them alone and that they are entitled to use other people in any way they see fit. The existence of such megalomania should not be dismissed lightly. Simply because we associate it more with caligulan monarchs and despots of times gone by does not mean to say that our democratic structures are impervious to it. Many libertarians are vocal opponents of what they see as “US exceptionalism” – the idea that the US government can pretty much do whatever it pleases in foreign affairs and standards that apply to a foreign government do not apply to the US. How can this be described as anything except megalomania?

Second, the logical effects of the socialisation of society – the total collapse of the division of labour and the complete decimation of the standard of living – can be gut wrenchingly long run effects. Society currently has plenty of capital that can be consumed and afford a comfortable, even luxurious living to any one individual. The Soviet Union took an agonising seventy years to die, a span of time that exceeds that of most individual’s adult lives. An advocate of socialism and socialisation is therefore not necessarily advocating his own certain death or relegation to poverty. He may be content to live like a king for the duration of his life and not care a whit if society became deeply impoverished long after he has dropped off of his mortal coil. Arguably this was the attitude inherent in Keynes’ oft-quoted quip “in the long run we are all dead”. As Murray Rothbard is supposed to have retorted, “Keynes died and we were left with the long run”. But such an attitude is provoked and enflamed by the fact that democratic government is a revolving door with officeholders required to endure repeated elections, endowing them a very short time in which to accomplish their goals. Every politician yearns for his day in the sun when he is lauded and praised as a great statesman, but he has to achieve this now, in the short run, before he loses an election. As long as he can reap the headlines and rewards during his tenure and, possibly, for the remainder of his life, who cares if his policies are ultimately destructive after he is long gone? It is for this reason that democratic governments are suffering from ever increasing and crippling debt as each generation of politicians seeks to shower its electorate with free goodies that only have to be paid for years after they have left office (or have died) and it is somebody else’s problem9. So too, could we suggest, that endless war has become the norm as each successive leader tries to demonstrate his Churchillian qualities and to elevate himself to the legendary, almost Godlike realms of the great warrior-statesman such as Lincoln and Roosevelt. Never mind that war ultimately is destructive; never mind that it destroys entire cities and societies; never mind that it kills, maims and otherwise ruins the lives of millions of innocent civilians. As long as the commander-in-chief can claim to have vanquished a cherry-picked foe in some distant country then his place as a saviour of civilisation is assured, at least in the meantime. So too do the manufacturers and profiteers of armaments display the same attitude. They know how evil and destructive war ultimately is; there is no shortage of literature espousing this fact. But they get to reap heavy profits now and to enhance their own lifestyles now. Why should they care about what happens in the long run?

Third, by resting its case on the general virtues of the market this kind of utilitarianism suggests that if some form of social organisation, other than the market, however unlikely, becomes feasible then private property rights could be legitimately overridden. In other words if some form of collectivism could sustain the division of labour and a standard of living equal to or exceeding that of the free market would the force behind government taxation, theft, murder then become legitimate? However, surely if such a world was to come about we would still argue that people have the right to self-ownership and the right to the ownership of goods in their possession as first user or through voluntary transfer? Of course, a person might choose to submit to the yoke of government planning if it affords him a higher standard of living than that of the free market, but this is a different kettle of fish as the submission is then purely voluntary. On its own, however, any ability of a system other than the free market to sustain a society is insufficient as a justification to override private property rights.

Fourth, this brand of utilitarianism may convey a sense of prospective justice – that which should happen concerning property rights in the future – but what does it have to say about retrospective justice? In short, how does utilitarianism know whether the existing structure of property rights is just? After all, the existing structure of ownership benefits a lot of thieves and plunderers that would need to be dealt with in the transition from a statist to a libertarian society. A libertarian steeped in natural law and Lockean homesteading theory would answer this question rather straightforwardly. Any current owner would have to demonstrate that his title derives either from original appropriation or through voluntary transfers in title. If it is not and someone who claims such a title comes forward then ownership must be yielded to the latter. A utilitarian, however, has a bit of a problem as his philosophy generally focuses on the benefit changes to the existing array of property titles to the current market participants. He could argue that, like the natural lawyer, all existing titles to property could be examined against competing claims and then either endorsed or rectified accordingly. However, because his theory is based on the efficacy of the market in developing the division of labour his case for requiring this is demonstrably weakened. Certainly theft and plunder disrupted the efficiency of the market in the past. However, wouldn’t a mass of re-appropriations to rectify ancient crimes undermine the efficacy of the market today, at least temporarily? Would it not be easier, from the point of view of efficiency, to just preserve all existing titles then let everyone go forward? Why compound a past disruption to the market with a new one? It is upon this basis that this brand of utilitarianism is criticised for preserving the status quo, for permitting, in the transmission to a libertarian world, the bureaucratic class to keep their hands on the loot, much like the oligarchy did in Eastern Europe after the collapse of the Soviet Union. To be sure, this argument against utilitarianism is not, in the view of the present author, as strong as some libertarians make it out to be. Nevertheless, utilitarianism does open itself up to the charge that there comes a point where stolen property should remain in the hands of the thieves (or their heirs) simply because the act of unwinding the theft would cause more disruption to the market than to not to do so, particularly if the property is heavily invested in an enterprise that provides substantial employment and is apparently productive. Moreover, while it is straightforward enough to justify voluntary trade in the marketplace as promoting the division of labour and the standard of living, we have to wonder whether the utilitarian can provide much of a justification for original appropriation – that is, for the first user of a good to retain it – with his utilitarian arguments alone. Original appropriation is of course the genesis of voluntary trade – we appropriate virgin goods with the intent to produce with them and trade them away for things we want in exchange, thus helping to overcome the fact that the world’s resources are not evenly distributed amongst different geographic regions. However, such a justification can only stand if one can also demonstrate that the originally appropriated property is previously ownerless and unvalued by other people, and is only recognised as scarce and valuable by the first user. The only possible such demonstration is that the first user was the one to “mix his labour with it”, whereas the actions of everyone else demonstrated no preference for that property. Hence all utilitarian arguments in favour of the free market, fundamentally, collapse into the Lockean homesteading theory anyway.

Having addressed the question of whether this form of utilitarianism can be a useful moral underpinning for libertarianism, let us turn now to whether it is useful as a persuasive tool for espousing the virtues of a free society. In this sphere, utilitarianism certainly fares much better. The heaviest gun in the arsenal of the utilitarian libertarian is the fact that living in an unfettered free society where government exists, at most, as a “night watchman”, limited to protecting private property rights of the individual, will produce manifold increases in the standard of living through a rise in real wage rates. It also has the virtue, in contrast to the basic form of consequentialism, of concentrating its focus on the very institution that is an anathema to freedom – the government – instead of getting bogged down in the minutiae of individual cases. Squarely, it is government that needs to withdraw itself from the marketplace and it is government that needs to stop meddling in economic affairs in order to bring about these wonderful consequences. Furthermore, every government minister promotes his programmes on the basis that they will serve to help at least some sector of society, if not everybody. The utilitarian, however, armed with a thorough understanding of economics, can easily demonstrate why the results must always be the very opposite of those intended and why the government interference will always, necessarily, create more harm than good when examined under the terms of its own justification. While, therefore, a given politician or promoter may have ulterior motives in proposing any programme – such as to benefit lobbyists, donors or other special interests – his public justification for the programme can be shown as shambolic. There may, of course, be some difficulty in disabusing people of the notion that the free market is a “sink-or-swim” society and there is also added problem of those who steadfastly refuse to try their hand in the marketplace for what might seem like a distant reward and prefer instead to yield to the siren song of government redistribution. To this, only a passionate plea for the justice of the market place can provide an answer.

Conclusion

George Reisman explains how an understanding of the consequences of free market economics has “powerful implications for ethics”:

It demonstrates exhaustively that in a division-of-labor, capitalist society, one man’s gain is not another man’s loss, that, indeed, it is actually other men’s gain — especially in the case of the building of great fortunes. In sum, economics demonstrates that the rational self-interests of all men are harmonious. In so doing, economics raises a leading voice against the traditional ethics of altruism and self-sacrifice. It presents society — a division-of-labor, capitalist society — not as an entity over and above the individual, to which he must sacrifice his interests, but as an indispensable means within which the individual can fulfill the ultimate ends of his own personal life and happiness.

A knowledge of economics is indispensable for anyone who seeks to understand his own place in the modern world and that of others. It is a powerful antidote to unfounded feelings of being the victim or perpetrator of “exploitation” and to all feelings of “alienation” based on the belief that the economic world is immoral, purposeless, or chaotic. Such unfounded feelings rest on an ignorance of economics.10

While, therefore, we must conclude that no form of utilitarianism provides an adequate, watertight moral backbone for libertarianism, which can only be furnished by demonstrating the justice inherent in private property rights and free exchange, we must also agree that we can never ignore the manifold benefits to every individual and the harmonious society that they create. Indeed, few people, publically, ever attempt to propose an ethical theory that does not create a society of peace and harmony. Thus a through understanding of the effects of the free market can provide a framework with which to refute competing theories on their own terms. Furthermore, few deontological libertarians omit to pepper their theories with demonstrations of the beneficial consequences of the marketplace. While, therefore, this essay has been generally critical of utilitarianism it is likely that it will always have a central place in libertarian theory.

—

1Reprinted in “Economic Controversies”, pp. 289-333. Rothbard is, however, keen to note that his reconstruction does not provide any plea for an ethical system, merely “conclusions to the framer of ethical judgments as part of the data for his ethical system”.

4Libertarian jurisprudence does, of course, have to determine precisely which physical acts result in which property rights. However, any difficulty is likely to remain only in borderline cases or cases where evidence of prior ownership is fleeting or difficult to apprehend and, in general, all persons should be able to determine in the majority of situations whether property is subject to a prior right and a third party referee would not be required to determine this.

5As a result it is also the case that consequentialists vary in their particular views concerning the justice of taxation, eminent domain, intellectual property, etc. on to a greater degree than rule-based libertarians.

6Ironically, the same argument based on interpersonal utility comparisons – that the wealthy value what they have less than the poor and that the latter “need” this wealth more than the rich do – is used by proponents of government welfare and redistribution. It is difficult to understand how an argument that can be used against a world of liberty can be used in favour of it.

7Ludwig von Mises, Human Action:A Treatise on Economics, p.676.

8It is upon this foundation that Mises’ examination of concrete economic policies, where he moves from the wertfrei into the world of value judgments – the effectiveness of the policies themselves from the point of view of those who promote them – is based.

9Because the incessant tendency is now reaching a chronic level the ability to postpone the day of reckoning has become ever more difficult and most of the more recent glory-seekers are now living to reap what they sow. Former Federal Reserve Chairman Alan Greenspan is a pertinent example.

One of the aspects of capitalism and the free market that the typical lay person finds difficult to comprehend is the fact that the complex structure of work, production, distribution, and trade could possibly take place without some kind of centralised, directing authority in order to co-ordinate everybody’s efforts. Wouldn’t there just be chaos and mal-coordination with everyone trying to make their own, independent plans with no government tiller to steer the giant ship?

This fallacy stems from the belief – accentuated by holistic concepts such aggregate statistics and, indeed, national identities – that “the economy” is some kind of enormous machine that has “input” and requires one operator to “process” the “inputs” into “outputs”. In fact, rather than being one giant, amorphous blob “the economy” is made up of millions and millions of independent unilateral acts of production and two-way trades, many of which will never have anything to do with each other. Indeed, I may sell an apple to my neighbour for 10p in London; another person may sell an orange for 20p to his neighbour in Manchester. Neither of the two pairs of people has ever met, nor need any of them have anything to do with the exchange of the other pair; and yet both exchanges would be regarded as part of “the British economy” in mainstream discourse. Rather than being a top-down operated machine, the economy is a bottom up network of independent transactions – motivated by the ends desired by each and every one of us rather than a bureaucrat – joined only together through the communication of the price system. All of the trades together, stimulated by varying and changing desires and ends that people seek, will have a constant and unceasing influence on the prices that regulate the supply of goods relative to their demand. Ironically, it is precisely because of such complexity that the attempts of any central authority to control and direct it are nothing short of futile – as Ludwig von Mises proved as long ago as the birth of the world’s greatest collectivist experiment, the Soviet Union, in Economic Calculation in the Socialist Commonwealth.

An oft-heard complaint, particularly from the left, is that “globalisation” and expanding markets has led to a decimation of the local culture and community. All this means, however, is that the market for goods has simply expanded so that one can source one’s needs from pretty much anywhere on the globe. It is still the case that the driving force of demand is not global or holistic – it resides very locally in every individual person’s tastes and desires. Such complaints therefore fail to recognise the irony in calling for a very distant and hardly local entity – the government – to halt globalisation and expanding markets by replacing what individual, local people desire with its own ends.

This myth, of course, goes further than economics and has more than seeped into philosophy as well, stemming from a basic misunderstanding about what is required for the human race to live in peace and harmony. It does not mean that we all need to be pursuing the same ends, following the same plan or singing from the same hymn sheet and we do not need some centralising authority to prevent “discordance” between the actions of one person and another. Rather, what is required is that we can each follow our own plans while not conflicting with the plans of others. This is precisely what private property and the free exchange accomplish. Recognising that all conflicts have their origin in the contest over physical goods, an exclusive right is granted to the first user-producer (or to the recipient of the good in a voluntary exchange) so that he may fulfil his ends without molestation from other people; and other people can use the goods for which they are the first producer-user without interference from him. Any person arguing in favour of “one direction” and “harmony” at the behest of centralised control really means that everyone else’s plans should be overridden by his own – and should be forced to accept them. Indeed every forced, government transaction requires there to be at least one loser, one person who does not want his funds directed to the ends desired by government. Rather than producing harmony what results is merely bitterness and antagonism. Furthermore, aside from the economic chaos that such a system brings, rather than inspiring such qualities as productivity, self-reliance, hard work, prudence, patience and responsibility, the resulting social disorder instils, in their stead, laziness, apathy, conflict, corruption, impatience and cynicism – hardly the human qualities that one would wish to exemplify as the hallmarks of a “peaceful” and “harmonious” society.

True harmony can only be brought about by allowing each and every individual to pursue his own ends with the scarce resources over which he has lawful ownership, while allowing everyone else to do the same – permitting the human race to flourish peacefully and devoid of conflict. Not only does government fail to aid this process, it is the active cause of its destruction – and the sooner we recognise this the closer we will be to building a lasting peace and prosperity.

It is frequently asserted that a system of free market capitalism reduces everyone to the level of animals, subject to the “law of the jungle”. Similar emotive epithets are those such as capitalism being “dog eat dog” or “winner takes all”. Nothing could be further from the truth.

Under a capitalist system all property is privately owned. Therefore, all exchanges are voluntary and not coerced (except, obviously, for acknowledged criminal acts of theft and violence). But for a voluntary exchange to occur then both parties must expect to benefit from the exchange. The exchange has therefore been productive as it has left both parties with something better than what they had before. If they did not expect to be better off then neither would have made the exchange.

Contrast this, however, with Government intervention. Such interventions, such as taxation, are ­non-voluntary, i.e. the taxed individual has no choice as to whether the exchange occurs. But if he would not have made the exchange voluntarily then it follows that he does not regard the post-exchange results as being to his benefit in comparison. Hence while the recipient – Government, or whoever Government distributes the money to – benefits, the forced giver manifestly does not. And as it is not possible to measure utilities between individuals we cannot say that the recipient gains “more” than the tax-payer loses.

Indeed the very essence of capitalism and its ability to lift whole populations out of the slum of poverty is because people produce goods that other people want which they then trade for what they themselveswant in return. There is production of new goods that are voluntarily traded to make everyone’s lives better off. It is a plus-sum operation. Taxation and other forms of coerced exchange, however, are fights over existing goods – goods that already have been produced but the Government wades in and decides that someone other than the productive party should have them. This is manifestly a zero-sum game, one party reaping what another loses. And what could be closer to the law of the jungle than this? Animals in the jungle are not productive, they fight with other animals for the restricted goods that nature has offered them so that they may survive. What one animal gains another animal loses. “Dog eat dog” is therefore a more appropriate description of political fights for taxpayers’ money rather than for free exchange.

Finally, “winner takes all” would be a more apt description for democracy than for capitalism. With private property and free exchange the minority does not have to be restricted to the products and services that the majority wants. Most people might decide to shop at the mall but that does not force others to do so and does not stop the latter from spending their pounds or dollars at a boutique. In a Government election, however, the minority – the losers – have to put up with the successful candidate even though they didn’t want him and might find his policies odious. Such a system benefits only the majority – the winners, who take all – at the expense of the hapless losers.

Indeed such epithets as these we have been discussing are usually applied to capitalism by those who do not believe that they have benefited enough from free exchange and to remedy this they want to start taking what other people have, usually in the name of “fairness” and “equality”. Such charlatans should be exposed for what they are honestly trying to do – reduce human civilisation to a very real law of the jungle.

In a previous essay the present author commented on the role of envy in relation to greed. This short post will seek to comment on the relationship between social utility and envy, elaborating on a position put forward by Murray N Rothbard.

Rothbard treated the problem of envy and societal wealth in the following way:

If A and B trade two goods or services, they each do so because they will be, or rather expect to be, better off as a result of the trade. Surely it is legitimate then to say that A and B are both better off, and “therefore” that “society is better off,” since no one demonstrably loses by the exchange. It is implicit, and even explicit from the use of the value-loaded term “optimal,” that this exchange is therefore a “good thing.” I am sympathetic to the view that this exchange is a good thing, but I do not believe that this can be concluded merely from the fact of exchange, as the Pareto Optimum does. In the first place, there might well be one or more people in existence who dislike and envy A or B, and who therefore experience pain and psychic loss because the object of their envy has now improved his lot. We cannot therefore conclude from the mere fact of an exchange that “everyone” is better off, and we can therefore not simply leap to the valuation idea of social utility. In order to pronounce this voluntary exchange as “good,” we need another term to our syllogism: we must make the ethical pronouncement that envy is evil, and should not be allowed to cloud our approval of the exchange. But in that case we are back to the need for a coherent ethical system. I believe, as an “ethicist,” that envy is evil, but I see no willingness among economists to admit the need for, much less set forth, any sort of coherent ethical position.1

In an earlier article he provided an elaboration as to why the potential for envy does not prevent us from saying that societal wealth increases from free exchange:

But what about…the envious man who hates the benefits of others? To the extent that he himself has participated in the market, to that extent he reveals that he likes and benefits from the market. And we are not interested in his opinions about the exchanges made by others, since his preferences are not demonstrated through action and are therefore irrelevant. How do we know that this hypothetical envious one loses in utility because of the exchanges of others? Consulting his verbal opinions does not suffice, for his proclaimed envy might be a joke or a literary game or a deliberate lie. We are led inexorably, then, to the conclusion that the processes of the free market always lead to a gain in social utility. And we can say this with absolute validity as economists, without engaging in ethical judgments.2

In other words because of the concept of preference demonstrated through action it is not possible to determine whether a third party is envious:

Actual choice reveals, or demonstrates, a man’s preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis.3

Nevertheless I believe a stronger and more precise elaboration can be made. From the fact of action we are able to deduce that a person acts to bring about a set of circumstances that he prefers to those that exist prior to the action. But this valuation of circumstances is made ex-ante, a fact to which Rothbard alludes but passes over, in the first passage quoted above. It is an assessment of the value of that which is against that which he/she wants to bring about. It is only in this ex-ante sense that we are able to say that if A and B participate in a voluntary exchange that they are “better off”. The envy of a third party, however, can only arise at the ex-post stage, that is after the completion of the action – the envy is of the circumstances that have arisen as a result of the action. In the ex-ante position the action exists only in the mind of the acting individual/s. Any feelings of third parties must necessarily arise because of the state of the world as it is prior to action, not because of it. When we say that societal wealth increases from a voluntary action we mean that this is true only ex-ante.

The situation ex-post is markedly different. At this point we are, in fact, not able to deduce if anyone is better off, even the parties to the exchange let alone potentially envious third parties. So not only may third parties be envious and bitter at what has arisen from A and B’s exchange but A and/or B themselves may feel that they have suffered a psychic loss and, if they could have their time again, would not repeat the exchange. Once the actions are completed and the desires of the minds of the acting individuals have expressed themselves through real actions we move into the ex-post world where nothing more about the action can be said.

Why are we not able to determine this ex-post situation? Precisely because of the concept of demonstrated preference elaborated above. Unless valuations are expressed through action we cannot deduce at all the ex-post position. A person may be profitable, loss-making, envious, hurt or whatever but this is merely hypothetical without the specific evaluation of the individual being deducible through his actions.

It follows that when different methods of economic organisation are being compared, it is only the ex-ante consideration that is relevant as this is the only one that can be deduced through actions. For the actions of all individuals, whether they are of an individual, a corporation, a Government or the Central Planning Board only demonstrate their ex-ante valuations. And it is only with free exchange that both parties to the transactions expect to be better off. All other forms of organisation necessarily involve involuntary actions where at least one party does not expect to benefit (otherwise they would have made the action voluntarily), the impossibility of measuring this loss meaning that we cannot conclude there has been any increase in societal wealth.

In sum, therefore,

Under conditions of voluntary action all parties to an action will benefit ex-ante;

Ex-ante an action exists only in the mind of the acting individual/s. Third parties can neither gain nor lose ex-ante as nothing has happened in the world for them to assess;

It can therefore be said that voluntary action will increase societal wealth ex-ante.

Under conditions of involuntary action at least one party will not benefit ex-ante. It cannot be said, as a consequence, that societal wealth increases;

Ex-post it is not possible to deduce whether anyone has gained or lost; this can only be evaluated through further, concrete actions which themselves can only be analysed according to the criteria just elaborated.

Nevertheless it must be stressed that this is insufficient to justify free exchange unless we insert ethical norms that state why we should want societal wealth to be increased; indeed, why should we want everyone to be better off? Why not a majority or a minority? There is nothing to stop someone from saying “I accept that free exchange makes everyone better off but I don’t want everyone to be better off. I think that a person should make sure that himself and his friends are better off regardless of the consequences to everyone else.” Rothbard again:

The fact that the free market maximizes social utility, or that State action cannot be considered voluntary, or that the laissez-faire economists were better welfare analysts than they are given credit for, in itself implies no plea for laissez-faire or for any other social system. What welfare economics does is to present these conclusions to the framer of ethical judgments as part of the data for his ethical system. To the person who scorns social utility or admires coercion, our analysis might furnish powerful arguments for a policy of thoroughgoing Statism.4

Such a possibility cannot be ruled out from the fact of free exchange alone. They can be ruled out praxeologically but this must be the subject for a later essay.